LUCY ADAMS and ROBBIE DINWOODIE
A further £6m could be lost to the Scottish purse as a result of the VAT implications of public sector reform.
The latest public body to face losing VAT cash is Scottish Enterprise, with the planned restructuring of local enterprise companies set to see at least £6m lost to coffers in London.
Reform of the enterprise network has been at the heart of the Scottish Government's efficiency drive, so the fact that millions of pounds freed up in this way will go straight to the Treasury is a blow to John Swinney's plans. The old LECs were VAT-exempt but when they are wound up and Scottish Enterprise takes over a streamlined network a major part of these efficiency savings could be swallowed up by the Treasury.
The Herald revealed this week that the setting up of the Scottish Police Services Authority went ahead without securing an agreement that it would be VAT-exempt, which could result in a bill for £5m.
The government insisted yesterday that the Scottish Enterprise situation was not a blunder but a calculated decision that reform was worth pursuing, even without a deal from Her Majesty's Revenue and Customs on VAT status, and that these negotiations continued.
A Scottish Government spokeswoman said: "Ministers were fully aware of Scottish Enterprise's ability to recover VAT in respect of Local Enterprise Company transactions and that their ability to do so was subject to continuing review by HMRC.
"The total amount of VAT currently recovered in this way is around £6m per annum and declining. However, savings arising from the reform of Scottish Enterprise will comfortably exceed any VAT losses arising from the removal of LEC structures."
The Herald was informed that the implications of scrapping local enterprise companies could be a loss of VAT-exemption of up to £15m annually, but sources at Scottish Enterprise indicated that the actual figure was closer to £6m.
A spokeswoman for SE said yesterday: "We continue working towards ambitious efficiency targets, the benefits of which will outweigh any VAT implications.
"VAT recovery by LECs diminished over the years and, as arrangements were subject to ongoing reviews by HMRC, could have been withdrawn regardless. Going forward, there will be no loss to the public purse as VAT recovery already comes from a public source - the impact for the taxpayer is neutral."
Alex Neil of the SNP said: "It's quite clear that Scottish Enterprise is responsible for this blunder. There needs to be an investigation into why they received this information from auditors and didn't disclose it to ministers."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article